Basic Information Regarding Online Gaming Law
(Updated March 18, 2026)
United States Online Gambling Law has changed dramatically in the last two decades. Legislation and enforcement efforts have resulted in a highly regulated gaming industry. Interstate online gambling is illegal under United States federal law, as is the marketing, promotion, or advertising thereof. Some states have legalized intrastate online gambling, however the wagers can only be placed with licensed operators by individuals physically located in the state. These states authorize casino gambling and/or sports betting, with some requiring a partnership with an existing licensed casino, and others allowing “decoupled” online gambling. Some forms of online gambling, like interstate sports betting, are specifically prohibited by federal statutes. Other gaming activity may or may not be legal, depending on the circumstances.
Federal authorities have historically relied upon the Wire Wager Act (“Wire Act”) as the basis for asserting that interstate online gambling is illegal. This law prohibits interstate betting on sporting events, or other contests, using “wire” systems (including telephones or the Internet). However, the courts have limited the scope of this law to wagering on sporting events, not including casino gambling. Various other federal laws may apply to certain online gambling activities, such as the Illegal Gambling Business Act, the Wagering Paraphernalia Act, and the Travel Act; however, their applicability depends substantially on the type of gaming activity, as well as the state law where the activity is occurring.
In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”), which prohibits the acceptance of money for the purpose of illegal online gambling, and imposes requirements on banks and other financial service providers to identify and block illegal financial transactions. The administrative regulations promulgated by the U.S. Treasury Department provide the opportunity for certain online gaming operations to continue using U.S. financial institutions to process their transactions, if supported by a “reasoned legal opinion”. Based on the plain language of the UIGEA, only financial transactions relating to wagers that are illegal where they are made are prohibited by the law. However, case law has also considered the legality of the bets where they are received. Such determinations require an evaluation of the current state of gambling law both in the location where the betting transaction is initiated and where it is processed. Thus, some gambling-related financial transactions may be illegal under the UIGEA, while others may not.
Different forms of gaming-related entertainment may fall outside traditional gambling laws, such as skill gaming, tournaments, sweepstakes, fantasy sports, and gamified shopping. However, those activities implicate other potential regulations, primarily at the state level. Accordingly, at least as far as federal law is concerned, the operation of U.S.-facing online interstate sports betting websites is illegal, and acceptance of funds for unlawful gambling activity is prohibited. The legality of other forms of gaming activity is less clear, and can vary from state to state.
Shortly after the UIGEA was passed, many U.S.-facing gambling sites began to block U.S. players and deposits. Most online poker operations continued to serve U.S. players until the “Black Friday” indictments against executives from three large poker sites on April 15, 2011. These indictments caused the online poker industry to effectively cut off the U.S. player market. The withdrawal of the large poker sites created some opportunity for other companies willing to take on a degree of legal risk to serve U.S. players. However, enhanced banking and financial compliance obligations created difficulty in receiving player deposits from the U.S. The development of cryptocurrency such as bitcoin alleviated that practical barrier (for sites that accepted this alternative currency), however legal risks remained. Offshore bitcoin gaming sites continue to operate, although criminal charges have been brought against some U.S. bitcoin gaming sites. Few licensed gambling jurisdictions permit player deposits in cryptocurrency due to concerns with money laundering offenses and “know your customer” (KYC) rules.
Aside from federal law, some individual states have passed their own laws pertaining to online gambling, sweepstakes, fantasy sports, and skill gaming. Most statutes focus on prohibiting the operation of an online gambling business, while a few also prohibit the act of placing a bet online. Specific laws regulate the operation of a sweepstakes in some states. Other states prohibit wagering on games of skill through statutes or case law.
As noted above, some states specifically license online gambling or sports betting within the state’s borders. Other states have legalized fantasy sports betting, while still others have prohibited such activity. With more and more states passing laws directed to online gaming activity, the result has been an increasingly complex state of affairs. Some forms of Internet gambling may, for example, be legal in certain states while completely prohibited or criminalized in others. Since some federal laws like the Illegal Gambling Business Act and the UIGEA rely on the legality of gambling activity at the state level, any attempt to determine the legality of a particular online gambling operation in the United States can require extensive evaluation and analysis.
A more difficult question is presented when the online gaming activity eliminates (or reduces) one of the required elements of gambling; i.e., “prize,” “chance,” or “consideration.” Sweepstakes operators focus on eliminating “consideration”, since the sweepstakes entries cannot be purchased but are given away as a promotional incentive. Skill games, contests (including fantasy sports games), and tournaments, focus on eliminating “chance”. However, some states ban wagering on games of skill, along with games of chance. Social games, including so-called “skins gaming” sites, that provide only in-game rewards, focus on eliminating the “prize” element. However, at least one court has found that awarding in-game prizes which award the right to replay the game constitutes illegal gambling. Gamified shopping or “mystery box” platforms eliminate the risk of loss associated with the chance element by ensuring that the user always receives a prize equal to the amount paid to play. This business model is largely untested in the courts, but can be analogized to purchases of trading card packs. Penny auction sites seek to eliminate the concept of wagering altogether, instead allowing participants to bid for prizes. Each of these business models must be evaluated separately to determine whether they are impacted by potential state or federal gaming restrictions.
Social media is full of ads offering users the opportunity to play casino-style games to win real money. The operators of such games typically use “sweepstakes” software designed to be used to promote the sale of legitimate products or services using games of chance. However, if players pay money to wager on such games, instead of paying for separate goods or services promoted by the gaming activity, the games could be deemed unlawful gambling. In a sweepstakes, no purchase is required to play the games, although chances to win prizes can be given away in accordance with the sale of products or services. For more about the legality of sweepstakes software, see our post here.
Service providers such as advertisers, payment processors, hosts, and website developers have also been targeted for violating certain online gaming prohibitions. Some financial service providers like NeTeller have been criminally prosecuted, while media outlets like Google, MSN, and Yahoo! have paid millions of dollars in fines, because of their past promotion of online gambling sites. Even software developers have been prosecuted when their programs have been openly used for real money gambling. Accordingly, any involvement with online gambling requires an evaluation of the current legal climate.
United States law enforcement authorities, at both the state and federal levels, have increased enforcement of criminal and civil forfeiture statutes against those blatantly violating U.S. online gambling law. Both U.S. citizens and foreigners – passing through the United States while traveling – have been arrested in these crackdowns. For example, individuals associated with BetOnSports.com, a major sports betting website, were prosecuted and pled guilty to serious federal gambling offenses. Similar prosecutions have occurred in Florida, New York, Nevada, and Louisiana. In December 2008, the owner of one of the largest poker sites, Party Gaming d/b/a partypoker.com, voluntarily appeared in this country to plead guilty to violating the Wire Act, and agreed to forfeit $300 million dollars, relating to the company’s activity before it blocked U.S. players. As noted above, the prosecutions have not been limited to actual website operators, but have also included hosts, website designers, advertisers, and billing processors.
Efforts to pass uniform federal online gambling legislation have repeatedly failed. Therefore, the U.S. has adopted a state-by-state approach to Internet gaming policy development. Many states have now legalized some form of online gambling for individuals within their borders. For example, online casinos operate in Delaware, Michigan, New Jersey, Pennsylvania, and West Virginia, and online poker is available in Delaware, Michigan, Nevada, New Jersey, and Pennsylvania. It is expected that more states will follow suit, although some states will continue statutory bans or simply not address the issue.
With the Supreme Court’s 2018 decision striking down the federal statute known as PASPA (Professional and Amateur Sports Protection Act), sports betting can now be legalized within any state. Colorado, Illinois, Indiana, Iowa, New Jersey, Pennsylvania, Rhode Island, and West Virginia have issued licenses for multiple online sports books, and many others are exploring these opportunities. However, the Wire Act may create hurdles for any online sports betting that involves the interstate wire system.
Despite the crackdown on unlicensed Internet gambling operators, significant opportunities remain in the realms of online skill gaming, e-sports contests, sweepstakes, trivia games, treasure hunts, fantasy sports, gamified shopping, penny auctions, and social gaming. Many operators are experimenting with the use of a sweepstakes business model to offer both casino games and sports betting by offering a “dual coin” system – one for purchase that offers no real prizes and one that allows entry into the sweepstakes to win cash. However, gaming enforcement agencies in numerous states have pushed back against these businesses by threatening charges or sending subpoenas. Increased legalization of online gambling at the state level provides additional opportunities for serious operators. The public’s desire for gaming-related entertainment remains at an all-time high. If you need legal guidance in the online gaming field, please contact us: https://www.firstamendment.com/contact-us/
For more information about Online Gambling Law Issues, see:
Which States Allow Skill Gaming?